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Perfectly competitive market |
A market that meets the conditions of many buyers and sellers, all firms selling identical products, and no barriers to new firms entering the market |
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Demand Schedule |
A table showing the relationship between the price of a product and the quantity of the product demanded |
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Quantity Demanded |
The amount of a good or service that a consumer is willing and able to purchase at a given price |
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Demand Curve |
A curve that shows the relationship between the price of a product and the quantity of the product demanded |
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Market Demand |
The demand by all the consumers of a given good or service |
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Law of Demand |
The rule that holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease |
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Substitution Effect |
The Change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes |
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Income Effect |
The change in the quanitity demanded of a good that results from the effect of a change in the goods price on consumers purchasing power |
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Ceteris Paribus Condition |
(all else equal) The requirement that when analyzing the relationship between two variables such as price and quantity demanded other variables must be held constant |
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A shift of a demand Curve |
an increase or a decrease in demand |
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A movement along a demand curve |
an increase or a decrease in the quantity demanded |
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Variables That Shift Market Demand |
Income, Prices of Related Goods, Tastes, Population and Demographics, Expected Future Prices |
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Shift to the Right |
Increase in Demand |
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Shift to the Left |
Decrease in Demand |
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Income |
The income that consumers have available to spend affects their willingness and ability to buy a good |
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Normal Good |
A good for which the demand increases as income rises and decreases as income falls |
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Inferior Good |
A good for which the demand increases as income falls and decreases as income rises |
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Subsitutes |
Goods and Services that can be used for the same purpose |
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Prices of Related Goods |
The prices of other goods can also affect consumers demand for a product |
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Complements |
Goods and services that are used together, the more consumers buy of one, the more they will buy of the other |
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Demographics |
The Characteristics of a population with respect to age, race, and gender |
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Tastes |
Consumers can be influenced by an adverstising campaign for a product. |
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Population and Demographics |
Refers to age, race and gender, can effect a demand for a product |
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Aging of the Baby Boom Generation |
Increasing need for healthcare services, drive up medicare costs, Bigger homes will turn in favor of apartments and condos or small |
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Expected Future Prices |
Consumers choose not only which products to buy but also when to buy them. If they think the price of a product will go up, then they will buy it now. |
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Change in Demand |
Refers to a shift of the demand curve, A shift occurs when there is a change in one of the variables other than the price that affects the willingness of consumers to buy the product |
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Change in Quantity |
refers to a movement along the demand curve as a result of a change in the products price |
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Quantity Supplied |
The amount of a good or service that a firm is willing and able to supply at a given price |
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Supply Schedule |
A table that shows the relationship between the price of a product and the quantity of the product supplied |
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Supply Curve |
A curve that shows the relationship between the price of a product and the quantity of the product supplied |
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Law of Supply |
The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied |
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Variables that shift Market Supply |
Prices of inputs Technological change Prices of substitutes in production Number of firms in the market Expected future prices |
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Prices of Inputs |
Most likely to cause supply curve to shift, An input in anything used in the production of a good or service |
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Shift to the right |
Increase in supply |
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Shift to the left |
Decrease in supply |
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Technological Change |
A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs |
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Substitutes in Production |
Alternative products that a firm could produce are called substitutes of production |
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Number of Firms in the Market |
Will change supply, When new firms enter a market, the supply curve shifts to the right, when existing firms leave a market, the supply curve shifts to the left |
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Expected Future Prices |
If a firm expects that the price of its product will be higher in the future than it is today, it has an incentive to decrease supply now and increase it in the future |
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Change in Supply |
Refers to a shift of the supply curve, the supply curve will shift when there is a change in one of the variables |
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Change in quantity supplied |
refers to a movement along the supply curve as a result of a change in the products change in the products price. |
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Market Equilibrium |
A situation in which quantity demanded equals quantity supplied, Both Supply and demand |
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Competitive Market Equilibrium |
A market equilibrium with many buyers and many sellers, At a competitive market equilibrium, all consumers willing to pay the market price will be able to buy as much of the product as they want, and all firms willing to accept the market price will be able to sell as much of the product as they want. |
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Surplus |
When the quantity supplied is greater than the quantity demanded there is a surplus in the market |
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Shortage |
When the quantity demanded is greater than the quantity supplied, there is a shortage in the market |
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When a shift in a demand or supply curve causes a change in equilibrium price, what happens |
the change in price does not cause a further shift in demand or supply. |
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Do PPFs tell profits, or demand |
No, they don’t give the details |
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Positive Statement |
If you do this, then that will happen |
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Normative |
An opinion, is that right, too high |
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Oppurtunity Cost |
Can be or can’t measured |
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Curve |
every line in economics |
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Cannot have Barriers to have |
Free Market |
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What happens to the PPF if there is bad publicity on a product |
The line of PPF will be lowered |
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PPF Bowing outward means |
Economic Growth |
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Little numbers with variables on PPF lines |
Little numbers is the orders of economic demand shift |
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Normal Goods and Inferior Goods are |
Opposites |
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Example of Normal Good |
Delmonte Green Beans |
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Example of Inferior Good |
Great Value Green Beans |
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Can a good switch back and forth between a Normal Good and Inferior Good |
Yes |
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Example of Inferior Good |
McDonalds |
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Example of Normal Good |
Steak |
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Example of Substitute |
Steak and Chicken |
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Example of Complement |
Computer and Monitor Drink, Straw, Lids |
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Example of Complement |
Houses and Windows |
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Example of Taste |
People wear yankee hats that aren’t yankee fans wear the hat/ Popularity Copying a celebrity Look |
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The market for energy drinks has grown rapidly over the pas several years. On report predicts that energy drinks might replace coffee for the current generation of teen and young adults. This report implies that energy drinks and cofee are |
Substitutes |
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The Law of demand implies, holding else constant, that |
As the price of bagels increases, the quantity of bagels demanded will decrease |
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If a demand curve shifts to the right, then |
Demand has increased |
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A change in all of the following variables will change the market demand for a product except |
The price of the product |
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The income effect of a price change refers to the impact of a change in |
The price of a good on a consumers purchasing power |
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A supply schedule |
is a table that shows the relationship between the price of a product and the quantity of the product supplied |
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A demand curve shows the relationship between |
The price of a product and the quantity of the product demanded |
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If a decrease in income leads to an increase in the demand for macaroni, then macaroni is |
An inferior good |
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If a decrease in income leads to in a decrease in the demand for ice cream, then ice cream is |
Normal Good |
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Know the difference between quantity demanded and market demand. Be able to pick it out of a multiple choice question or identify it on a graph |
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What is the difference between a schedule and a curve? |
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Know what substitutes, compliments, normal and inferior goods are. |
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What is the income effect? |
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What is the substitution effect? |
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Know what variables shift demand and supply (this ties into quantity demanded/quantity supplied and market demand and market supply—there are differences. |
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Know the relationship between "related goods" and substitutes (coffee and energy drinks) |
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Know "surplus" and "shortage" ( p79) |
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What is market equilibrium? |
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Be able to identify how quantity demanded will move on a curve. |
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Be able to identify market demand or market supply and which way the curve will move given an example in the form of a test question. |
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